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AIG reaches deal to repay government

NEW YORK (AP) - AIG, which became a lightning rod for criticism
over government bailouts, said it reached a deal to repay billions
of dollars it received during the credit crisis.

The plan announced Thursday could return a profit to taxpayers
who footed the bill for AIG's near collapse in September 2008.

"This is a pivotal milestone as we deliver on our long-standing
promise to repay taxpayers," Robert Benmosche, AIG's CEO said in a
statement. "We are very pleased that this agreement vastly
simplifies current government support of AIG."

The announcement provides a clearer strategy to repay AIG's debt
to the government. Until this point, AIG was primarily repaying the
government as it took in money from asset sales, but there was no
timeline for repayment.

New York-based American International Group Inc. was one of the
hardest hit financial companies by the credit crisis and received
the largest bailout the government doled out. It received a bailout
package worth as much as $180 billion from the government, which
received an 80 percent stake in the company in return.

The insurance giant was not undone by its traditional business,
but instead for dealing in the complex derivatives and securities
market that got so many financial companies into trouble.

AIG also received considerable criticism because it continued to
pay out bonuses to employees after it received the bailout,
including employees who worked in the division that nearly
destroyed the company.

The government stepped in to rescue AIG because the insurer
worked with hundreds of financial institutions throughout the
world. The government believed at the time that a collapse of AIG
would further hurt the already fragile credit markets, which had
been shaken by the bankruptcy of Lehman Brothers.

As part of AIG's exit plan, the U.S. Treasury Department will
swap preferred shares it currently holds in AIG for common stock
and then sell those shares over time. AIG will also repay loans it
received from the Federal Reserve Bank of New York as part of the
deal.

As of June 30, AIG still had $132.1 billion in outstanding aid
from the government, including $49.1 billion in loans from the
Treasury Department. The new shares will give the Treasury a 92.1
percent stake in AIG before it begins selling shares.

In Washington, Treasury Secretary Timothy Geithner praised the
agreement that was reached.

"The exit strategy announced today dramatically accelerates the
timeline for AIG's repayment and puts taxpayers in a considerably
stronger position to recoup our investment in the company," Geithner said in a statement.

The government will receive about 1.66 billion shares of AIG
common stock in exchange for the $49.1 billion in preferred shares
it holds in AIG. Those preferred shares were issued through the
government's Troubled Asset Relief Program, which was launched to
provide $700 billion to financial companies during the credit
crisis.

The conversion price of the government's shares is equal to
about $29.67 a share.

AIG shares rose $2.04, or 5.5 percent, to $39.49 in morning
trading. So if the government is able to sell shares at the current
trading price, it will make $16.25 billion in profit.

The government could still lose money elsewhere. As part of the
bailout, the government took over some of AIG's risky investments,
and is exposed to potential losses related to them.

To alleviate concerns about the government flooding the market
with new shares of AIG, the insurer will issue 75 million warrants
to current common shareholders that will allow them to buy new
stock for $45 per share.

AIG owes the Federal Reserve Bank of New York about $20 billion.
It plans to repay that debt, in part, through earnings it generates
and the sale of some its subsidiaries. AIG has been selling some of
its units since it received the initial bailout in September 2008.
It is in the process of selling American Life Insurance Co. to
MetLife Inc. and spinning off American International Assurance Co.
into a new company. Those two moves will help cover a large portion
of the money AIG owes the Federal Reserve bank of New York.

AIG said in a separate statement Thursday that it reached a deal
to sell two Japanese life insurance units to Prudential Financial
Inc. for about $4.2 billion in cash. That money will also going
toward repaying the government bailout.

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AP Economics Writer Martin Crutsinger in Washington and AP
Business Writer Michelle Chapman in New York contributed to this
report.